Rio Tinto tells analysts diamond division not for sale

Rio Tinto has convinced analysts that its diamonds division is not on the block and it may even look at extending mine lives if they can deliver attractive cash returns.

Rio Tinto is showing sell-side analysts around its North American operations this week, with a focus on its Kennecott Utah Copper mine.

But the tour started with its diamonds and minerals and Deutsche Bank analysts told clients it was all about “positioning" and “demand driven".

The analysts said in a note on Wednesday morning: “The buzz words in the presentations for the diamonds and minerals divisions were ‘positioning’ (getting ready for the mid to late cycle demand growth from its products) and ‘demand driven’ (acknowledging that Rio is a large player in its mineral markets and needing to produce to match market demand and achieve the value for its higher quality products).

“While Diamonds and Borates were previously for sale it is clear that Rio sees the significant increase in cashflows this year (100 per cent FCF uplift from 2013) and into the future driving more value than it may have been offered – if mid to late cycle demand picks up in China, this division will be extremely cash generative."

UBS analysts also came away with the impression that Rio’s diamonds and minerals was run differently to other divisions, with production driven by buyer demand.

“Rio remains bullish on the longer-term demand outlook for all D+M products, which are driven by urbanisation and the movement towards consumer-driven growth," the analysts told clients.

“Rio Tinto decided not to sell diamonds in 2013 as it believes any sale or spin-off would undervalue the business. Rio aims to run the business for cash and will look at extending mine lives if the projects are attractive vs other options across the Rio portfolio. There is no plan currently to divest any operations in Diamonds & Minerals."